Pensions Tips

Tips on How to Buy a Pension

The new stakeholder pension has removed many of the problems you faced when buying a pension. They’re have low charges and are highly flexible. But you still have to worry about what you are investing in.

The following information may still be worth checking before you start any type of pension

Basic Tips

If you can join a occupational Pension plan then you should definitely always do so unless there is some very special reason not to do so. The “special reason” is not that you want more money to spend and don’t want a pension. Giving up your occupational pension is very serious – for starters, you lose what your firm pays in.

Pension Buyers Checklist

Meet and go through your pension shopping list (make notes there and then).

Your IFA will probably write a follow up “reasons why” letter recommending a particular course of action. Study this. Has it covered what you discussed was possible from your pension shopping checklist? Maybe discuss what’s recommended with a friend / partner etc – if they can stand it.

Can you vary the amounts of yourcontributions without penalty i.e. on a rainy day?

Can you stop making payments without penalty? If so for how long?

Is there a waiver of contribution insurance included i.e. your contributions are covered by insurance if you can’t pay owing to ill health etc? If so what are the details? How much does this cost? And do you need it?

What is the earliest you can retire and on what conditions? If you have a personal pension, this must now be 55.

What’s the position re switching pension funds. Could you leave the pension providers altogether? Can you have internal and external transfers.

Making decisions. Some tips:

Try and divide the task into sections.

Use a pen and a paper with, for example, two columns: “pros” and “cons”.

When considering try and be logical and not emotional e.g. don’t go for the well known name because it makes you feel safe but look at the specific terms of the pension they are offering you. Is it really flexible? Etc.

Give the decision plenty of time. Ideally this should be weeks and not days. Certainly not hours.

But, then again, don’t leave it too long or keep putting it off. So set yourself a decision date – put it in a diary or program your phone!

Don’t make decisions when you are tired, stressed or depressed. Never make a decision late at night.

TIP When doing something like this it’s often best to complete it in “one sitting”. You can reassess your decision later. If you stop the task halfway through then you’ll probably have to start right from the beginning again.

Questions to ask your IFA.

Do you usually deal with someone in my earnings range ? (If IFAs only deal with wealthy individuals, as some do, they may not give you the right attention).

How long have you been in business for?If it’s a short time, find out why.

What qualifications do you have? There are now special qualifications in pensions.

Are you truly independent?

Who are you regulated by? It should be the Financial Services Authority.

What areas of personal finance do you specialise in? (they might focus on aparticular area eg investments, life insurance, health insurance – ideally you want a pensions expert).

TIP You may find that it’s wise to judge your IFA on how they deal with your questions. Directly? Or do you have difficulty in getting a straight answer.

Any good IFA should come over as straightforward and honest. If they don’t specialise in pensions they should be mature enough to know that recommending a more suitable IFA to you is good business all round.